Estimated number of errors in the tax system is on the rise despite the new
'more accurate' £273m system

More than five million workers have paid the wrong amount of tax, with a vast number now facing attempts to claw it back by HM Revenue and Customs.

An estimated 3.5 million paid too little tax through the Pay As You Earn system in 2013-14 and will now have to pay back the money in future years, despite the introduction of a multi-million-pound reform meant to improve the system’s accuracy.

HM Revenue and Customs has started writing to around 5.5 million taxpayers to tell them they paid the wrong amount of tax through PAYE last year.

Some two million paid too much and will be able to claim money back from the tax man.

The average error will be £300, tax officials estimate. Those due a rebate can claim a cheque from HMRC, while those who underpaid can repay through PAYE next year.

The 5.5 million errors HMRC is estimating for 2013-14 is higher than the 5.2 million in the previous year.

The figure has risen even though HMRC is now running its £270 million “Real Time Information” (RTI) programme, which is meant to make the tax system more accurate.

Underpayments and overpayments arise because the PAYE system only checks tax paid against tax due at the end of every year, meaning changes in financial circumstances such as pay rises or job changes are not reflected.

Under the RTI system employers report wage payments to HMRC on a weekly or monthly basis. The new system, criticised as cumbersome by some businesses, will have cost taxpayers at least £273 million by next year, official figures show.

Last year, the Treasury told MPs that RTI would “bring PAYE into the 21st century” and make it more accurate for both employers and HMRC.

Accountants said the increase in errors in the tax system showed that RTI was not working as promised, suggesting that the data being fed into the new system was often flawed. David Heaton of Baker Tilly, said: “RTI was supposed to make PAYE more accurate, not less. So why are there more [errors] this year, with RTI in full flow, than last year, when RTI was only a pilot? The number of PAYE differences has risen, not fallen. Something in RTI is not working.”

Kate Upcraft, a payroll consultant, said: “Taxpayers have spent hundreds of millions on RTI and employers have had to spend hundreds of millions to use the new system, so we are entitled to expect significantly fewer errors in the reconciliation process.”

HMRC said the increase in corrections was largely down to an increase in the number of people in employment that has come with the recovering economy.

A spokesman said that the effects of RTI had not been reflected yet and it would eventually lead to a reduction in the number of corrections. But they added that some adjustments would always be a feature of the tax system.